Lawyers concerned about ‘extraordinary’ FRC code omission

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A group of lawyers and academics have criticised an “extraordinary” omission from a proposed overhaul of the UK corporate governance code, saying a key opportunity to formalise the role of general counsel has been missed.

The Financial Reporting Council, the accounting watchdog that sets and enforces standards for corporate governance, reporting and audit, is currently consulting on an overhaul of the UK corporate governance code. Its aims include making boards more responsible for accurate accounts and directors more accountable for misconduct. A consultation that began in May ends on September 13.

The planned revisions follow a government consultation in 2021 on reforming UK audit and corporate governance after a series of scandals at companies including outsourcer Carillion and retailer BHS. 

However more than 70 senior in-house lawyers and academics have submitted a consultation response, calling on the FRC to formalise the role of general counsel in regulation.

The response notes that for UK companies, the general counsel “has a particularly broad influence across the full range of topics that the Code seeks to support, whether pure governance, ethical and cultural standards, or enterprise risk management”.

It added that it was “extraordinary for there to be no specific reference within the Code or its supporting Guidance to the role of the General Counsel.”

The authors urge the FTC’s revised version of the Code to reflect the fact that general counsel is “uniquely positioned” in having “an integral role” in “creating and maintaining a strong and healthy corporate culture.”

The consultation response has been co-ordinated by Jenifer Swallow, the former chief executive of Lawtech UK, a government-backed initiative aimed at transforming the legal sector through technology.

Swallow said: “Lawyers are fundamental to corporate governance. Regulators need to reflect that as the reality of what is happening in business — to codify it. GCs have grown in their influence and there is increased reliance inside business on their role. This is key to responsible business and the ESG agenda.”

Maaike De Bie, who is group general counsel and company secretary of Vodafone but signed up to the response in a personal capacity, said: “The FRC consultation on how to strengthen governance in the UK provides a good opportunity for this independence and integrity to be more clearly stated, formalising the General Counsel’s role in decision making, risk management and corporate culture.”

In many UK companies the role of general counsel has become more significant in recent years — like in the US, where GC’s have a highly influential role. UK businesses above a certain size have to have a company secretary — who does not necessarily have to be a lawyer — and often in the past, businesses have relied on advice from their external lawyers.

The Financial Reporting Council is due to be replaced by a more powerful regulator called the Audit, Reporting and Governance Authority. The FRC said it did not comment on individual consultation responses.